Renting of Immovable Property-Detailed Discussion

Renting means allowing, permitting or granting access any property with or without the transfer of the possession of control. From the GST prospective the Renting of immovable properties can be divided in two parts, one is renting of commercial property and other is renting of residential property. The renting of immovable property is a very crucial matter for discussion as from time to time many amendments are came under GST in respect of renting of immovable property. Let’s discuss in details about the term renting of immovable property.

As per section 7(1)(a) of CGST Act 2017 the expression supply includes all forms of supply of goods or services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business. Accordingly, the renting of immovable property would be considered as supply under GST. Further, the Schedule II of CGST Act 2017 contains the list of the activities or transactions which shall be treated as supply of goods or supply of services and as per clause(b) of para 2 of schedule II of CGST Act 2017 “ any lease or letting out of the building including a commercial, industrial or residential complex for business or commerce, either wholly or partly, is a supply of services”. Hence the renting of immovable property whether residential property or commercial property would be treated as supply of service. Now, we are going to discuss whether GST would be applicable on renting of immovable property or not?

The Notification No.12/2017 CT(Rate) provides an exemption from the GST in respect of the services mentioned therein. The serial number 12 of Notification No. 12/2017 provides an exemption in respect of the residential dwelling. The said serial number before 18.07.2022 i.e., before amendment states that;

However, with effect from 18.07.2022 an exemption was inserted vide Notification No. 04/2022 CT (R) in the serial number 12 of Notification No. 12/2017 CT(R). The amended serial number 12 as applicable with effect from 18.07.2022 is as follows;

The similar changes were made w.e.f 18.07.2022 in RCM Notification No. 13/2017 CT(R) by inserting a serial number 5AA in the said Notification. Such serial number was inserted by Notification No. 05/2022 CT(R). Serial number 5AA of Notification No. 13/2017 CT(R) states that;

In addition to this, an explanation was also inserted in serial number 12 of Notification No. 12/2017 CT(R) by Notification No. 15/2022 CT(R) with effect from 01.01.2023. The same is laid down as follows;
"Explanation. - For the purpose of exemption under this entry, this entry shall cover services by way of renting of residential dwelling to a registered person where,
(i) the registered person is proprietor of a proprietorship concern and rents the residential dwelling in his personal capacity for use as his own residence; and
(ii) such renting is on his own account and not that of the proprietorship concern."

Now, let’s summarised the impacts of above amendments in respect of renting of residential dwellings which were made in Notification No 12/2017 CT(R) & Notification No 13/2017 CT(R);

Upto 18.07.2022, the services by way of renting of residential dwelling for use as residence was exempted. However, with effect from 18.07.2022, such exemption would not be available if residential dwelling is rented to a registered person. Hence the exemption would be only if all the following three conditions are fulfilled;
Condition 1 – Service provider is engaged in providing service of renting of residential dwelling and
Condition 2 – The residential dwelling is used for the purpose of residence only and
Condition 3 – The residential dwelling is rented to an unregistered person.

First two conditions are same as earlier. However, the addition of the condition 3 has changed the scenario and w.e.f 18.07.2022, the exemption would be available only if the service receipient is un-registered under GST. With effect from 18.07.2022, the RCM would be applicable on such services if the recipient is registered.

Now the question arises, what is meaning of “residential dwelling”. The term “residential dwelling” is not defined under GST Laws. However, in the service tax law, the expression ‘residential dwelling’ was defined in paragraph 4.13.1 of Taxation of Services: An Education Guide dated 20-6-2012 which was issued by Central Board of Indirect taxes and Customs which states that;
Since the phrase ‘residential dwelling’ has not been defined in the Act. It has therefore to be interpreted in terms of the normal trade parlance as per which it is any residential accommodation, but does not include hotel, motel, inn, guest house, camp - site, lodge, house boat, or like places meant for temporary stay.

There are many other issues/doubts that came at the time of providing service of renting of residential property. Let’s discuss one by one;

1. Whether RCM would be applicable in respect of renting of residential dwelling if the recipient is registered in one state like Maharashtra but the residential property is located in another state like Gujarat where no registration is taken by recipient?

It is to be noted that the RCM would be applicable on renting of residential dwelling by any person to any registered person as per serial number 5 AA of Notification No.13/2017 CT(R). However, it is not mentioned in the said Notification that such residential property must be located in the same state in which the registered person is located. The only condition for applicability of RCM is that the recipient of service should be registered under GST and the property must be residential. Accordingly, in the given case the RCM would be applicable as the recipient of service is registered in Maharashtra and the property is residential.

2. As the recipient is registered in Maharashtra, whether recipient has to obtain registration in Gujarat to pay the tax under RCM?

In this regard it is important to determine the place of supply of such transaction i.e., renting of residential property. The place of supply of such transaction would be the location of immovable property i.e., Gujarat and if the location of the landlord (supplier) is also in Gujarat, then CGST & Gujarat GST would be applicable in that case and accordingly, the recipient has to obtain registration in Gujarat for deposit tax under RCM. However, if the location of the landlord (supplier) is not in Gujarat, then IGST would be applicable and there is no need to obtain registration in Gujarat.

3. If the company is registered under GST and has taken a residential property which will be used as a guest house for the employees of company or the company has maintained an office in such residential property. Whether RCM would applicable in this case?

Yes, the RCM would be applicable in this case also, as the company is registered under GST and the property taken on rent is also residential dwelling. For the applicability of RCM, the usage of property does not matter. In other words if the residential dwelling is used as a guest house of employees of the company or an office has maintained by the company in such residential dwelling the RCM would still applicable in this case in the hands of the company. The Odisha Authority for Advance Ruling in case of M/s. Indian Metals and Ferro Alloys Ltd.[2023(02)LCX0049(AAR)] has also held that the applicant (registered person) has received the service by way of taking residential premises on rent for use as its guest house, it was observed that the said service received by the applicant (registered person) is subject to GST under RCM.

Conclusion:

Upto 18.07.2022, the services by way of renting of residential dwelling for use as residence was exempted. However, with effect from 18.07.2022, such exemption would not be available if residential dwelling is rented to a registered person and such services would be taxable under RCM in that case.

Disclaimer: The information given in this article is solely for purpose of understanding the law. It is completely based on the interpretation of the author and cannot be constituted as a legal advise, the author of this article and Lawcrux team is not responsible for any legal issues if arises on the basis of the interpretation given above.